Relevance: GS III (Economy & Inflation) | Source: The Hindu / Indian Express

1. The Main Problem (What happened?)

• The Sea Blockade: Because of the ongoing war in West Asia (Middle East), a very important sea route called the Strait of Hormuz is blocked.
• Ships are Stuck: Almost 20% to 30% of the world’s cooking gas (LPG) supply is stuck in ships in this area.
• Prices Shoot Up: Because gas is suddenly in short supply globally, international LPG prices jumped by a massive 44% in just one month.

2. Who is paying the extra money?

The Indian government decided to protect the common man and passed the extra cost onto businesses instead:

• Your Home LPG (14.2 kg): Safe. Prices have not changed. The government shielded ordinary families from this shock.
• Hotel / Commercial LPG (19 kg): Costly. Prices were increased by over 10% (roughly ₹200 more per cylinder).
• Flight Fuel (ATF): Very Costly. Fuel for domestic flights saw a small hike, but fuel for international flights has suddenly doubled in price!

3. The Hidden Losses 

If the international price is high, but the government is selling you home LPG at the old cheap price, who is paying the difference?

• The Oil Companies: State-run oil companies (like Indian Oil or Bharat Petroleum) are absorbing this massive loss to protect the public. In economics, this forced financial loss is called an “Under-Recovery”.
• The Hard Data (For your Mains Answer): Right now, these oil companies are bleeding money. They are losing:
  • ₹380 on every single home LPG cylinder.
  • ₹24.4 on every litre of petrol.
  • ₹104.99 on every litre of diesel.
• The Total Debt: Soon, the total losses of these oil companies will cross a massive ₹40,000 crore.

4. How does this affect you?

Since flight fuel (ATF) has become extremely expensive, airlines like IndiGo are struggling. To survive, they are adding “fuel surcharges” to your flight tickets. So, traveling inside India will get slightly more expensive, while flying to Europe or America will cost you thousands of rupees extra.

UPSC Value Box

With reference to India’s petroleum sector, consider the following statements:

1. The Strait of Hormuz is a vital maritime route connecting the Persian Gulf to the Gulf of Oman.
2. “Under-recoveries” refer to the financial loss suffered by Oil Marketing Companies (OMCs) when they sell fuel to the public below actual costs.
3. In India, the prices of household LPG cylinders are strictly market-determined and fluctuate daily based on global prices.

Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 only

(d) 1, 2 and 3

Correct Answer: (a)